By partnering with the likes of Australian operator Telstra, Cisco hopes to catch up with competition

Cisco Systems plans to invest over US$1 billion to expand its cloud business over the next two years, including building an OpenStack-based "network of clouds" with partners.

The whole IT industry is moving to a world where more applications are running in hosted environments, and Cisco doesn't want to be left behind. The key building blocks of this push are Cisco Cloud Services and what the networking giant has dubbed an Intercloud, which will be hosted across a global network of Cisco and partner data centers, it said on Monday.

The Intercloud will be based on the increasingly popular OpenStack platform, and it will support any workload, on any hypervisor and interoperate with any cloud, both private and public, according to Cisco. By not going at it alone and instead partnering with local providers, Cisco's network of clouds will better positioned to address rising data sovereignty concerns, it said.

The continued revelations from former U.S. government contractor Edward Snowden about National Security Agency snooping have become a battle cry for local cloud providers across Europe as they try to compete with U.S. companies such as Amazon Web Services and Microsoft.

The promised size of the Intercloud will also make it a good fit for machine-to-machine applications or the so-called Internet of Everything, according to Cisco.

Delivering on all these lofty promises will be a huge challenge for Cisco. The company is late to the game and will have to compete with public cloud providers including Amazon and Microsoft, as well as Google and Rackspace. It will also have to compete with infrastructure vendors such as VMware that want operators to build an infrastructure based on its products.

Australian telecom carrier Telstra is the first of many partners in this venture, Cisco said. It will deploy and run a cloud infrastructure on behalf of Telstra, and Telstra will provide both Cisco and Telstra-specific services.

Other partners that are either planning to deliver Cisco Cloud Services or have endorsed the Intercloud initiative include Canadian communications provider Allstream; European cloud company Canopy, which is owned by Atos; and wholesale technology distributor Ingram Micro, Cisco said without elaborating on which company had done what.

Cloud Services is an expansion of its existing the Cisco Powered program. The line-up includes a version of SAP Hana optimized for Cisco's Unified Compute System; its own desktop virtualization product as well as solutions from VMware and Citrix; and a number of in-house developed services for hosted security and collaboration. Cisco plans to sell these services through channel partners and directly to end customers, it said.

The announcement is primarily geared toward Cisco resellers and channel partners, which may be considering ramping up their enterprise-focused cloud services to compete with Amazon Web Services (AWS) and other cloud providers, noted Robert Mahowald, program vice president for software as a service and cloud software for analyst firm IDC.

"Cisco is very channel sensitive," Mahowald said. "InterCloud is not so much about building customer-ready cloud services, but enabling partners to build clouds, with software-defined infrastructure. They want to sell more gear to partners as partners face the opportunity of selling cloud services."

The InterCloud concept could allow enterprises to shift their workloads from one InterCloud provider to another, avoiding the lock-in that may happen when a customer relies too heavily on a single cloud provider. Each Cisco partner will use OpenStack cloud software and Cisco's Application Centric Infrastructure (ACI) architecture.

"I think customers will want embrace the idea that the cloud is not a single vendor lock, but based on specifications that are widely supported," Mahowald said.

Cisco's knowledge of the enterprise plays a key role in the new offerings, agreed Charles King, principal analyst at Pund-IT analyst firm.

"Many enterprises have been slow or loathe to adopt cloud due to critical security and data governance issues. Cisco's goal of enabling processes, data and solutions to be shared across multiple global cloud service providers is a concept that could and should be attractive to many of its enterprise customers," King wrote, by email.

"The company is aiming to expand on its already significant position in enterprise and service provider networking by becoming the network plumbing contractor for global cloud services and deployments. For service providers and their customers, access to rock solid networking technology is key to cloud dependability. That core requirement is what Cisco is banking on," King wrote.

The $1 billion investment is similar to a proclamation IBM made earlier this year, in which it promised to invest $1 billion into its cloud services, following its $2 billion purchase of cloud provider SoftLayer last year.

"I think everyone is taking note of AWS and moving to do something," wrote Peter Christy, research director of networking for 451 Research, in an email.

(IDG News Service reporter Joab Jackson in New York contributed to this story. )